Cattlemen's Capitol Concerns

September 28, 2007

Use RVO that says Sept. 20, 2007 -The Cattlemen's Capitol Concerns (CCC) is a weekly report from Washington, D.C., giving an up-to-date summary of top policy initiatives concerning the cattle industry; direct from the National Cattlemen's Beef Association (NCBA). Please feel free to reprint in full or in part. If you'd like to include NCBA's logo, contact us at 202-347-0228. Rule Will Expand Canadian Beef and Cattle Trade USDA released its final rule to amend the BSE minimal risk region rule (Minimal Risk Rule II, or MRRII). This rule normalizes the trade of cattle and beef products from Canada into the United States. The final rule was published in the September 18th edition of the Federal Register and will take effect on November 19, 2007. This rule expands upon the Canadian Minimal Risk Rule I released by USDA's Animal and Plant Health Inspection Service (APHIS) in January 2005 that allowed the importation of certain live ruminants and ruminant products, including cattle under 30 months of age for slaughter from countries recognized as minimal risk for BSE. Currently, Canada is the only minimal-risk country designated by the United States. This final rule allows for the importation of the following: nLive cattle and other bovines (i.e., bison) for any use (including breeding) born on or after March 1, 1999, which APHIS has determined to be the date of effective enforcement of Canada's ruminant-to-ruminant feed ban;

Beef and beef products from Canadian cattle of any age (This was allowed as part of the first MRR rule, but USDA delayed the applicability of those provisions that dealt with beef and beef products from animals 30 months of age or older). In its economic analysis, USDA adjusted the annual estimate of older live cattle imports pertaining to this rule from 657,000 head to only 75,000 beginning in 2008. “Once this rule enters into effect, the primary result is expected to be additional imports of Canadian non-fed beef - rather than live cattle - which will replace lean beef imports from other countries such as New Zealand and Australia,” said Gregg Doud, NCBA chief economist. Doud and other industry economists do not expect this rule to vastly impact the U.S. cattle market, for the following reasons:

The age requirement in this rule will disqualify most Canadian beef cows from importation for lack of proper age documentation;

Transportation costs, the strength of the Canadian dollar, and a surplus of packing capacity in Canada are additional disincentives to live cattle imports;

The extra Canadian packing capacity boosted Canadian cull cow and bull slaughter by 50 percent between 2004 and 2006 and has greatly reduced any backlog of cull cows in Canada;

Although the price of cull cows in Canada is currently about 20 percent less than it is in the United States, annual Canadian cull cow slaughter is only 13 percent of that in the United States. As a result, it is widely expected that Canadian cull cow prices will appreciate to U.S. levels almost immediately after this rule goes into effect; and

In the short term, analysts expect U.S. cull cow prices to dip slightly but still stay above 2006 levels. NCBA is still reviewing the details of the rule but says it appears to represent a move toward normalized trade with Canada based on scientific standards, which NCBA supports. “Over the long term, this will have a positive impact for U.S. cattlemen. For example, we are now able to have discussions with Canada and Mexico Ð our two most lucrative export markets Ð about taking U.S. feeder cattle and breeding stock,” says Doud. “Our international trading partners are watching how we handle the resumption of trade with Canada and will likely apply some of the same standards to resuming trade with us.” Johanns resignation U.S. Agriculture Secretary Mike Johanns resigned his position Sept. 19. He will return to Nebraska where he is expected to launch a Senate bid in the coming days. “If it's Mike's decision and Nebraska's choice, he would make an outstanding member of the United States Senate. There is no doubt in my mind,” President Bush said today. NCBA President John Queen said, “Mike Johanns has been a great friend to NCBA and to the cattle industry, as well as to production agriculture as a whole. We hate to lose a friend like that. But we're hopeful that he will continue to be a friend to cattlemen, no matter where his life of public service takes him.” For cattlemen, Johanns' most revered accomplishment was his steadfast attention to restoring and expanding beef export markets. “Mike Johanns has properly insisted on establishing trade policies based on sound science and in accordance with international standards,” said Queen. Chuck Conner Named Acting Secretary of Ag In the wake of Johanns' resignation, President Bush has asked Chuck Conner, USDA's Deputy Secretary, to serve as the Acting CME Announces Changes in Live Cattle Futures The October 2008, December 2008, and February 2009 Live Cattle futures months will be listed for trading beginning September 17, 2007. Several important changes will apply to the October 2008 and subsequent contract months, the Chicago Mercantile Exchange (CME) announced last week. NCBA recommended these changes to the CME to better reflect current industry trends as well as increase liquidity and viability of the contract. For live graded deliveries beginning October 2008, these changes: nEliminate the requirement that the average weight of a par delivery unit must be between 1,100 pounds and 1,425 pounds;

Eliminate the requirement that individual steers at par must weigh no more than 100 pounds above or below the average weight of the delivery unit;

Eliminate the 3 cent per pound discount on individual steers weighing from 100 to 200 pounds over or under the average weight of the delivery unit; and

Add the ability to deliver steers weighing 1,475 pounds to 1,550 pounds at the same market-based discount used for 950-1000 pound carcasses in carcass graded deliveries. For carcass graded deliveries beginning October 2008, these changes:

Clarify the procedures used by USDA for re-grading carcasses in carcass graded deliveries so that carcasses in the top third of any quality grade except Prime are eligible for regrade;

Eliminate the ability to purchase replacement carcasses in the event that the total delivered live weight falls below 38,000 pounds;

Make the language and penalties for failure to deliver in carcass graded deliveries consistent with those used in live graded deliveries; and

Clarify the deadlines for the receiving long in a carcass graded delivery to accept or reject Large Lot Delivery, and for the Clearing House to notify the delivering short. In addition, several instances of obsolete and/or inconsistent rule language have been eliminated, and all interpretations have been incorporated into the corresponding Rules.